Question

Adam runs his own marketing business in Australia. During the year he incurred the following expenses: a) salary costs of $500,000. b) salary costs of $9,000 for his son who did some graphic design work for him as he was studying graphic design at university. The work took approximately 19 hours to complete. c) $1200 on membership to the local bowls club where he entertains clients. d) $3,000 on smart clothing that he considered necessary to portray the correct image to his clients. e) $8,500 on meal expenses for his important clients. f) Interest cost of $8,400 on a loan he took out to start up the business. g) $4,000 in travelling from home to work. h) $8,500 in telephone bills, of which he estimates 80% to be used for calling clients. i) $9,000 on airfare and accommodation to a marketing conference. j) $600 charged by his accountant to complete his tax return for the year. Advise Adam as to the deductibility of the above expenses. Ensure to make reference to relevant legislation

Answer 1

Below are the deductible of the mentioned expenses :-

a)- As per QC 33728, You can generally claim a deduction for salaries and wages you pay to your workers and for super contributions you make for them.

So in our case, Adam can claim salary cost of $500,000 as a deductible expenses.

b)- As mentioned above, salary paid to his son is also deductible expense.

c)- Only those expenses are deductible which are directly related to earning of income, hence this expenditure is not allowable as deductible.

d)- As per QC 33867, clothing expenses (corporate wardrobes and uniforms, and occupation-specific and protective clothing) are deductible business expense as "Expenses similar to those claimed by employees" but only those expenses which are for occupation related and not like business formal suits.

So this expense is not deductible

e)- Same as (c) above

f)- As per QC 31945,

You can claim a deduction for expenses incurred in earning interest, dividend or other investment income. You cannot claim a deduction for receiving an exempt dividend or other exempt income.

So in our case, Adam can claim interest as expense.

g)- As per QC 33720, you can't claim for travelling between your home and your place of business.

h)- A per QC 46119, You need to keep records for a four-week representative period in each income year to claim a deduction of more than $50. These records may include diary entries, including electronic records, and bills.

So in our case, Adam needs to keep track and proper records of the business related calls to claim the deduction.

i)- As per QC 31928, You can claim the cost of attending seminars, conferences or education workshops that are sufficiently connected to your work activities. This can include formal education courses provided by professional associations.

If attendance involves travel, you may have to show that you have reduced your claim to exclude any private portion of any trip.

j)- As per QC 31959, You can claim a deduction for expenses you incur in managing your own tax affairs, including:

• preparing and lodging your tax return and activity statements

So this expense is also deductible